Investing with QROPS: Commercial property

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Written By Saeed Maleki

istock_000005742227xsmallDue to strong yields and a recovering property market, commercial property in the UK is fast becoming the asset class of choice.

Yet caution is being urged amongst investors, as the sector’s strong performance over the past year means many are in danger of going over their lifetime allowance (LTA) – currently pegged at £1.5 million.

The LTA sets the limit on the total amount of tax relief you can receive before paying taxes.

If your pension pot goes over the LTA, you could be stung with a 55% tax charge on the excess.

Yet worryingly, the LTA is set to fall to £1.25 million in April 2014 – a tax hazard for anyone who is fast approaching this limit.

In light of this, investors need to consider using a tax wrapper which does not feature a lifetime allowance limit to effectively safeguard future growth.

How QROPS can help

Out of the potential wrappers available, for those living outside of the UK, Qualifying Recognised Overseas Pension Schemes (QROPS) may be the best option.

Launched in 2006, a QROPS allows pension holders who have moved abroad from the UK – or plan to – to transfer their UK pension fund into an overseas pension recognised by HM Revenue and Customs.

Whilst the benefits are vast, with reference to the LTA they are particularly valuable.

This is because if you transfer your pension into a QROPS before you reach your LTA, you will not be liable to pay the charge if you exceed the upper limit.

In addition, any future growth remains exempt from the UK’s “death taxes,” which can be as high as 55%.

Investment opportunities

With QROPS, you can also invest in stocks and shares, futures, bonds, gilts, deposits and even cash.

There is also no limit to the size of funds a QROPS can hold, meaning when you have transferred your pension fund, you can continue to grow it without repercussions.

In addition, everything can grow free from capital gains tax – including your contributions and the pension pot itself.

These benefits mean you must carefully consider whether transferring to a QROPS may be the best option for your unique circumstances.